Throughout the administration of Mexican President Andrés Manuel López Obrador, a main grievance of energy sector members has centered on the inability to obtain proper permitting to continue or complete projects, such as natural gas pipelines or power plants, in a timely fashion.
Much of the delays had to do with López Obrador’s dramatic overhaul of the energy industry, which included considerable staff reductions at the Comisión Reguladora de Energía (CRE) and the Comisión Nacional de Hidrocarburos (CNH). Market participants also complained of government efforts to cancel or deny private electricity generation permits to assure that state utility Comisión Federal de Electricidad (CFE) would generate more than 54% of the country’s power needs.
In recent comments at the Mexico Infrastructure Projects Forum in Monterrey, leaders of national and international natural gas companies, as well as a director of Sistrangas pipeline operator Cenagas, agreed that the permitting bottlenecks are continuing to stifle investment and the advancement of important distribution and supply projects.
Warren Levy, CEO of Jaguar Exploración y Producción, explained that, while the Mexico-based company has 11 blocks for exploration that produce up to 9 MMcf/d of natural gas, output could be four times greater if pending permits and connections were approved.
“The frustrating part is that we are producing 8 to 9 MMcf/d, and we have more than 40 MMcf that are waiting on connections and permits to be able to flow,” Levy said.
He explained that a “plethora of permits are required to make an interconnection” for a natural gas project in the country.
“I think that the challenge that we are facing is the complexity of permits and the wait times associated with interconnections,” Levy said. “If you have a gas field that produces 5 or 10 MMcf/d and you have to wait two years for permitting, that delay effectively kills the economic viability of a project.”
Rodolfo Gamboa, Vice President of Energy at Mexico’s Grupo Alfa, recounted similar challenges connecting its natural gas production from an onshore field in the Burgos Basin to the Sistrangas.
“We had to work a lot hand in hand with Cenagas to complete the process of permitting and the approval of engineering for the connection,” Gamboa said. “After three and a half years since beginning the process, we were able to connect to Sistrangas and for the gas to flow.”
While Gamboa characterized the experience as a “success story,” he said the company made an important discovery of natural gas in another Burgos field but is yet to connect to Sistrangas because the closest Cenagas pipeline is about 15 kilometers or nine miles from the find.
“This project could take us up to three years,” to obtain the proper permits to connect to the Sistrangas network, he said. “There comes a point when the investors and shareholders begin to question the profitability of the project.”
On the same panel, Paola Vázquez, forecast and process director for Cenagas, echoed the sentiments of Levy and Gamboa and explained that Cenagas has also faced repeated delays when dealing with the CRE.
Mexican law requires Cenagas to submit a five-year plan known as the Plan Quinquenal to CRE for approval. The plan outlines upcoming expansion and interconnection projects on the Sistrangas.
Vázquez explained that the approval process can be cumbersome, delaying progress and planning efforts in the natural gas industry.
“I completely agree with the vision that a priority for the sector has to be to reduce time required to obtain permits, particularly in regards to interconnections,” she said. “If there is a project that exceeds 250 meters, for example, that means a company has to pay for a permit and then process a permit, and the costs become excessive.”
Vázquez added, “I think there should be a constant review of the five-year plan…If we do that throughout the five-year plan, we will be able to detect the things that need to be adjusted in real time, instead of waiting five or six years to do so.”
